Where Cars and Credit Go Together!

Navigation

Tag Archives: credit scores

Post navigation

A credit score is a value calculated by one of three reporting companies: Experian, TransUnion, and Equifax. They use the Fair Isaac Corporation (FICO) scoring system on your collected financial information to come up with a score that reflects the credit industry’s appraisal of your reliable profitability. Note that this is not an evaluator of whether you are a good customer or even a trustworthy person. It’s a number that indicates how reliably lenders can make money off your accounts. The more reliable you are, the more likely they are to cut you a good deal. But bad credit can make it hard to get loans and other sources of credit at reasonable rates or at all

This leads to a number of situations where the best course of action isn’t necessarily the most obvious. But with a little help, there are often things that you can be doing to better your number. Car Credit would like to present a list of our top tips for raising your credit score.
1. Keep an eye on your credit scores

Sites like annualcreditreport.com allow you to check your credit score on a regular basis. This will give you an idea of just how much you need to improve, but it also has a more important function. Clerical errors happen, and your account could be unfairly impacted by something as simple as a bad customer with a similar name.

Don’t worry about these queries affecting your score. They count as “soft” queries, and like queries from potential employers and companies pre-approving credit cards will not affect your credit.1 Keeping careful track of your credit reports will let you know if this happens and allow you to take the appropriate actions to fix it.

2. Don’t miss payments

One of the quickest ways to sink your score is to be tardy with your bill payments. Payment history makes up a full 35% of your FICO credit score. And perhaps the most damaging are charge offs, debtors silent so long the credit companies have to write their their debts off as a loss.

Paying your bills on time is perhaps the most commonsense way of maintaining your credit score. But it is also very easy to mess up. Automatic payments are helpful tool in this regard. Sites like mint.com can help keep on top of all your accounts. But even with this kind of help, keep a close eye on things. The only way to guarantee you will catch fraud and errors is to look it over yourself.

3. Be proactive with problems

It’s often possible to get late payments and other mistakes removed from your account, especially if it’s the first time it has happened. Even when you are sure you aren’t going to be able to make a payment it is better to talk to your creditors beforehand and explain the situation. You may be able to come to some sort of arrangement that is better for your credit score and your bank account.2 It never hurts to ask.

4. Keep your credit use low, but regular

Credit companies look at the percentage of available credit you are using at the current moment. This includes individual cards and accounts in addition to your total available credit, so it is best to spread out debts between accounts. In each case, the less available credit you are using, the better you look. But the kicker here is that using your credit and paying it off is what builds your credit score in the first place. Using and promptly paying off small amounts of credit on a regular basis shows your ability to manage your accounts and keeps companies from canceling available lines of credit.

Also don’t open a bunch of accounts just to boost your available credit. Every time you apply for a card the company will send a “hard” credit report query that will temporarily lower your credit score. Note that car and home loan applications placed within a fourteen day period will count as a single query.1

5. Don’t close your oldest accounts

The length of your credit history determines fifteen percent of your potential credit score. Closing your oldest accounts can reduce the effective length of your history and the average length of your open credit accounts. This is especially problematic if your credit history in general is fairly short.

6. Clear credit blemishes

Outstanding debts and collections accounts are not helpful to your credit score. Try to negotiate with companies to remove them from your record in exchange for paying them off. Make sure to get any promises in writing. If you can’t, try to pay up anyway. A paid collection account is still better looking than an open account.

The one time this may not apply is if you have a charge-off debt approaching or more than seven years old. Paying off the debt will actually keep it on your record for another seven years. You are still legally obligated to pay these off. So negotiating the payment of one of these for removing the incident for the record is a win-win.